Critics say Oregon’s Liquor and Cannabis Commission paid far too much for new headquarters

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Both John Brown and Mark Meek use the same word to describe the price the Oregon Liquor and Cannabis Commission paid for the Canby property where the agency will build its new headquarters.

This word is obvious.

Earlier this year, the OLCC closed on a 33.75-acre parcel, paying $40.78 million for the gross land.

As recently as 2019, the agency told lawmakers the project, including land and building the headquarters and liquor warehouse, would cost $62.5 million. Today, that cost is estimated at $145.8 million.

Sure, steel, lumber and labor costs have jumped over the past three years, but OLCC officials acknowledge that much of the steep rise is a result of the surge. land prices.

The final price of the dirt purchased by the OLCC was almost triple what he expected to pay. And that infuriates Brown, chairman of the state’s Public Lands Advisory Committee.

He believes the state panicked and overpaid for the land, nearly doubling what he says was an already generous appraisal that valued the property at $22.1 million. The valuation was only made after the state had already agreed to the higher purchase price.

Brown joined the PLAC, which advises the state on real estate transactions valued over $100,000, more than a decade ago. He and Meek, a Democratic state representative from Milwaukie who also sits on the committee, reacted strongly when the deal was presented to them earlier this year.

Brown, a commercial real estate broker and former appraiser with three decades of experience, says the OLCC deal is by far the worst he’s seen the state do and it’s the only time he’s voted no on a transaction.

That deal was an anomaly, but that doesn’t make it right, Brown says. How many children sleeping under bridges could have had a home if we hadn’t wasted that money?

The OLCC generates the third largest revenue for the state government after income taxes and the Oregon Lottery. Almost every bottle of hard liquor sold in the state passes through the Milwaukie agency warehouse or a nearby satellite warehouse.

Chris Mayton, OLCC’s director of distilled spirits, said shortly after joining the agency in 2018, it became clear to him that his former 230,000 square foot warehouse, with its rickety conglomeration of conveyor belts à la Rube Goldberg, was too small.

I started raising red flags right away, he recalls, because I started doing five-year forecasts, and I said, hey, I was going to be in trouble.

That problem: Oregon’s growing population and its thirst for alcohol would overwhelm the agency’s capacity. (The OLCC ships approximately 327,000 cases of liquor per month and rotates its inventory seven times a year.) Inadequate warehouse space would reduce the agency’s ability to maximize revenue.

The agency hired consultancy Deloitte to test Mayton’s perception. In a 2020 study, the company agreed that the OLCC needed a new, larger warehouse somewhere along Interstate 5 and close to the metro area, where most sales take place.

Originally, the plan was to buy an out-of-the-box installation. But Mayton says when the agency asked permission from Gov. Kate Brown and the Oregon Department of Administrative Services to move forward, it was asked to split the proposal into two: buy first land and then build the head office and warehouse.

The rationale, says Mayton: equity and inclusion. If the state controlled the construction contract, it could control who gets the job.

Brown’s spokesman Charles Boyle said the governor’s office was not involved and directed questions to DAS.

Department spokeswoman Bryanna Duke confirms that the agency steered the OLCC away from a purpose-built project, which the DAS said carried too many complications and legal risks.

The decision was made to address those risks by buying the property instead, Duke says. Not only has this approach reduced legal risk, it has also better aligned with state procurement policies and objectives. One of those goals is to support the inclusion of Oregon’s minority and women-owned businesses in state projects.

The change delayed the process and provided potential sellers with useful information: they knew what the state wanted and was very keen to buy.

Meek, who works in residential real estate, says the state telegraphed desperation to sellers, one of whom, national property developer Trammell Crow, had previously been in talks with the state about building a a purpose-built headquarters in Canby.

The state began reviewing the properties in 2021. Initially, it identified four that met the state’s criteria. Two sold (at prices not disclosed), one proved to be unsuitable. The fourth was a Trammell Crow property that the state had earlier identified as a possible site for the project.

The state tentatively accepted the price from Trammell Crows in March 2022. It then obtained the appraisal in May which valued the land at a price well below the agreed purchase price. A month later, state agencies presented the PLAC with disturbing numbers as they sought approval from oversight committees.

Just two years earlier, Trammell Crow had purchased the land, which he would sell to the OLCC, for less than $6 per square foot. After making modest improvements, he would sell that same property to the state for the equivalent of $27 per square foot, far more than any comparable sale nearby.

We have become hostages to the market and this place, Meek said. We were the only buyer to pay this price.

At the June 2 PLAC meeting, Brown and Meek, joined by another member, took the unusual step of asking the state to seek a significant reduction in the price of Trammell Crows.

This is absolutely the worst deal the state has made in my time on the committee, Meek said. There was no urgency in making this decision to buy now. We are not losing money now.

The state asked Trammell Crow for a better price. The result was no surprise. They said pack sand, Brown said. The deal was closed in July.

OLCC officials acknowledge that the price of the Canby property was well above what they expected to pay.

But Mayton says the opportunity cost of staying in an undersized warehouse far outweighs the premium paid by the state.

If you just look at the 33 acres and say, you spent that much money? I would say that was crazy too, says Mayton. But considering the vacancy rate for the land, the whole project, and what it means for the state of Oregon, it was absolutely a good business decision.

The OLCC is currently preparing the bidding process to hire a construction manager and hopes to turn the first sod in February 2024.

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